Long-term Retail Mutual Fund Flows Jump $61B In September: Citi

Citi analysts William R Katz, Neil Stratton and Steven J Fullerton dissect U.S. mutual fund flows in September in their research work “September U.S. MF Trends: Flows Recover But Usual Suspects Standout” of October 14, 2013.

Long-term Retail Mutual Fund Flows Jump $61B In September: Citi

Here are key insights from the report.

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Retail interest high despite politics

Retail inflows were $78B in September comprising $34B in long-term inflows and $43B in money market flows. On an MTM basis long-term flows jumped $61B of which $32B accrued to Equities and $28B to Fixed Income. This was creditable given the volatile markets and the uncertainty in Washington due to the shutdown and debt ceiling.

Long-term fund lows (U.S. industry as a whole) higher

Net long-term inflows grew 3.5% on an annualized basis to $34B in the month. This comprised $39B (+6%) in Equity flows and $5B (-2%) in Fixed Income.  This was a significant improvement over August, which printed net outflows of $26B (-3% annualized). It is interesting that within Equity, International flows of  $7B grew 11%, much higher than Domestic flows of $15B (+3%).

Investors partial to passively managed funds

There was a decided preference for passive funds compared to active funds as seen from the table below:

Long-term Active ($B) Annualized Growth Passive ($B) Annualized Growth
Equity +9 +2% +30 +15%
Fixed Income -13 -5% +8 +19%
Net total -4 -1% +38 +16%

Fund Flows amongst key players – Equities

Equity Gainers Losers
WisdomTree Investments, Inc.(NASDAQ:WETF) +29%
BlackRock, Inc.(NYSE:BLK) +20%
Affiliated Managers Group, Inc.(NYSE:AMG) +17%
Invesco Ltd.(NYSE:IVZ) +17%
Janus Capital Group Inc(NYSE:JNS) +10% -19%
Eaton Vance Corp(NYSE:EV) -6%

Citi: “Flows continue to generally accrue to a select number of players, leaving individual company dynamics mixed for much of our coverage.”

Fund flows amongst key players – Fixed Income

Affiliated Managers Group, Inc. (NYSE:AMG), BlackRock, Inc. (NYSE:BLK), Waddell & Reed Financial, Inc. (NYSE:WDR), Invesco Ltd. (NYSE:IVZ) and Eaton Vance Corp (NYSE:EV) were the winners. Big losers were Ameriprise Financial, Inc. (NYSE:AMP) at -16% annualized, and Federated Investors Inc (NYSE:FII) at -12% annualized.

Citi’s sector picks

Citi’s key pick amongst Traditional asset managers is Invesco Ltd.(NYSE:IVZ), the rationale being the benefits that could accrue due to a continued liberal Fed stance. The Blackstone Group L.P.(NYSE:BX) is favored by Citi in the Alternative asset management space. LPL Financial Holdings Inc (NASDAQ:LPLA) looks promising in the Broker/Dealer Sector.